New comparability is the most flexible profit-sharing formula available for 401(k) plans. Using this formula, plan sponsors can allocate different profit sharing amounts to each participant or specific groups of participants.
Depending on the census data of the particular plan, new comparability plans may allow for owners and other highly-paid participants to receive higher contributions than they would receive under alternate profit-sharing formulas. However, because of the complexities of new comparability, plans that utilize this formula must undergo additional nondiscrimination testing.
While new comparability profit sharing allocations are permitted in both the Core and Enterprise tiers, certain calculation requests may be subject to additional fees.
If you’re interested in new comparability profit sharing, Guideline will perform a calculation that maximizes the allocation to the owners while keeping the amount of the allocation as a whole as low as possible.
In order to help pass the required nondiscrimination testing, there is only a limited amount of changes you can make from what we propose. The more specific your requests are, the less likely the allocation will pass nondiscrimination testing.
What modifications are likely to work?
The total amount of profit sharing
We can change the total amount of profit sharing so you are contributing closer to the total amount you want. This will directly affect the individual amounts everyone receives.
Which specific owners are targeted to get the maximum contributions
With the new comparability formula, not all participants have to receive the same amount. If requested, one or more specified owners can receive a larger amount over the others (in general, the oldest owner will get the highest contribution). You can change which owners are targeted, but this may increase the total amount of profit sharing.
The amount each owner will receive if the amount is currently the same
If you have chosen to allocate the same percentage to each owner, you can change what that specific amount is. This will adjust your overall profit sharing amount.
You can also modify the formula so only one owner is maximized, and other owners will receive as little as $0. Doing this will often provide a lower total amount of profit sharing and tends to be a more favorable scenario for non-owners.
What modifications are unlikely to work?
Specific amounts each participant receives
You may be able to change the specific amount each non-owner participant receives to a certain extent. However, because the allocation must still meet nondiscrimination requirements, not all requested allocations are feasible.
Our calculations are designed to minimize the allocation to non-owners as a group. Decreasing the amount for a specific participant or participants will change the entire calculation and typically make it much more difficult or even impossible to pass nondiscrimination testing.
Reduce contributions for specific NHCE participants
All eligible non-highly compensated employees (NHCE) must receive a minimum profit sharing allocation (referred to as the minimum gateway). In addition, some participants may require more than the minimum to allow the plan to pass coverage and/or average benefits testing. Younger participants and participants who receive less compensation are usually targeted when additional contributions are required to keep the allocation as low as possible.